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FOOL PLATE SPECIAL
An Investment Opinion
by Warren Gump
Winds Blow Against Nautica
Men's apparel maker Nautica <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NAUT)") else Response.Write("(Nasdaq: NAUT)") end if %> sailed down $2 3/4 to $14 on news that earnings for its next two quarters are going to fall below expectations. According to a company press release, results for the third quarter ended on November 30 will show increases in earnings and revenue of 6% to 8%. Based on last year's EPS of $0.48, that indicates earnings should be about $0.51 compared to First Call estimates of $0.55. According to the company, a "very difficult" retail environment, mild weather, and general economic factors have hurt spending for apparel, particularly outerwear. Fourth quarter revenue and earnings are also expected to fall below analyst estimates, but no specific guidance was provided. The First Call estimate for Q4 was $0.39 per share.
This earnings warning was obviously a disappointment to investors, but couldn't have been totally unexpected as the stock has fallen over 55% from its March high of $32 1/2. Over the past three years, Nautica has posted compound annual revenue growth of over 25% and earnings growth of over 30%. Driving these increases were "in-store shops," where Nautica sets up focused selling areas within department stores, and the continued development of the company's retail outlets. Around 62% of the company's sales last year were to May Department Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAY)") else Response.Write("(NYSE: MAY)") end if %>, Federated Department Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FD)") else Response.Write("(NYSE: FD)") end if %>, and Dillard Department Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DDS)") else Response.Write("(NYSE: DDS)") end if %>. In the first half of this year, revenue growth slowed down to 14%, although earnings still jumped up 28%.
My guess is that Nautica will weather this storm. The company has done an excellent job of managing its balance sheet, with ending Q2 inventory and accounts receivable up only 13% and 12%, respectively. In addition, the company has essentially no long-term debt. Future growth will be dependent on staying up-to-date with fashion trends, expanding its product lines, and strengthening its distribution channels. The company has been successful in broadening its menswear lines, but so far hasn't been able to penetrate the women's fashion business. With a strong balance sheet and trading at only 9x trailing earnings, investors willing to absorb the volatility associated with the fashion business may want to consider a walk down the runway with Nautica.
Online services conglomerate America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> moved up $3 11/16 to $96 7/16 after saying its AOL Shopping e-commerce channel has so far attracted 3.5 times more shoppers during this year's Christmas season than a year ago. The company said that online shoppers are also spending more money, with the average purchase price coming in at $54, up an estimated 48% from last year.
Entertainment and consumer products retailer K-tel International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KTEL)") else Response.Write("(Nasdaq: KTEL)") end if %> rose $2 1/4 to $14 9/16 after announcing financing plans to retain its stock listing on the Nasdaq National Market. The firm will meet Nasdaq's $4 million net tangible assets requirement by issuing equity through employee stock option exercises, including a 200,000 share option to be exercised by Chairman Philip Kives, and through its expected $1 million net loss for fiscal Q2. The company also plans to raise another $15 million to $20 million in equity in order to meet its long-term capital requirements.
Online retailer Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> jumped $46 to $288 3/4 after CIBC Oppenheimer reportedly boosted its 12-month price target on the stock to a whopping $400 per share from the previously forecasted $150 per share. Other Internet retailers rallied on the news, as eBay <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EBAY)") else Response.Write("(Nasdaq: EBAY)") end if %> added $18 3/8 to $212 3/8 and Onsale <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ONSL)") else Response.Write("(Nasdaq: ONSL)") end if %> advanced $3 1/16 to $40 9/16. Recent online bookseller addition Books-A-Million <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BAMM)") else Response.Write("(Nasdaq: BAMM)") end if %> also gained $4 1/8 to $14 3/16 as it announced the acquisition of privately held NetCentral Inc., which designed the company's website.
Internet search and retrieval software company Verity Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VRTY)") else Response.Write("(Nasdaq: VRTY)") end if %> climbed $2 13/16 to $26 3/16 after reporting fiscal Q3 EPS of $0.18, up from the $0.10 earned in Q2 and well ahead of last year's loss of $0.64. The results were double the $0.09 mean estimate of the two analysts surveyed by Zacks. Revenues increased 15% sequentially to $15.2 million, due in part to "significant" sales of its intranet portal products to customers in various industries.
Hotel real estate investment trust Patriot American Hospitality <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PAH)") else Response.Write("(NYSE: PAH)") end if %> was lifted $1 5/16 to $8 1/2 after an investment group including Apollo Management and Thomas H. Lee Co. agreed to provide the company with $1 billion in equity financing. According to Patriot American Chairman and CEO Paul Nussbaum, the investment will allow the company to "reduce leverage, improve liquidity, and... continue to implement its business plan."
Healthcare electronic data services provider ENVOY Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENVY)") else Response.Write("(Nasdaq: ENVY)") end if %> gained $9 3/16 to $51 7/16 after agreeing to be acquired by pharmaceutical contract research organization (CRO) Quintiles Transnational Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QTRN)") else Response.Write("(Nasdaq: QTRN)") end if %>. Under the deal, each ENVOY share will be exchanged for 1.166 shares of Quintiles, placing a $1.7 billion price tag on ENVOY based on last night's closing prices. Quintiles sank $7 5/8 to $48 9/16 on the news.
Several oil and gas services and contract drilling firms gained ground today as oil prices rose to their highest levels in nearly a month in anticipation that the U.S. may order air strikes against Iraq. According to reports, the Iraqi government has refused to grant U.N. weapons inspectors full access to suspected weapons facilities. Air strikes could presumably disrupt the flow of Iraqi oil, easing the ongoing oil glut somewhat. Schlumberger <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLB)") else Response.Write("(NYSE: SLB)") end if %> gained $2 1/16 to $45 15/16, Halliburton <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HAL)") else Response.Write("(NYSE: HAL)") end if %> added $1 1/4 to $32 3/4, Baker Hughes <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BHI)") else Response.Write("(NYSE: BHI)") end if %> rose $9/16 to $16 15/16, R&B Falcon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLC)") else Response.Write("(NYSE: FLC)") end if %> advanced $5/8 to $8 15/16, and Transocean Offshore <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RIG)") else Response.Write("(NYSE: RIG)") end if %> moved up $1 1/2 to $26 11/16.
Oil and natural gas exploration and production company Enron Oil & Gas <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EOG)") else Response.Write("(NYSE: EOG)") end if %> picked up $1/8 to $15 5/8 after parent Enron Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ENE)") else Response.Write("(NYSE: ENE)") end if %> disclosed in a Securities and Exchange Commission filing that it has received an unsolicited offer from an unspecified company for its 53.5% stake in Enron Oil & Gas. Enron gained $1 3/4 to $55 3/16 as well this morning.
Imaging, digital video, and graphics processing integrated circuits firm Genesis Microchip <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GNSSF)") else Response.Write("(Nasdaq: GNSSF)") end if %> tacked on $2 1/2 to $24 1/4 after reporting fiscal Q2 EPS of $0.15, up from $0.05 last year and topping the Zacks mean estimate of $0.10. Revenues of $8.7 million during the quarter were more than 2.5 times the results from a year ago.
Post-It notes and Scotch tape maker 3M <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %> came unstuck today, falling $3 1/8 to $70 5/8 after warning that due to modest sales growth, reductions in factory output, and negative currency effects, it expects fourth quarter earnings per share to be about 10% lower than last year's $0.89. That means EPS of roughly $0.80 compared with the First Call consensus prediction of $0.96. For 1999, the company anticipates EPS will increase by around 8% on revenue growth of 4% to 5%.
News of price cuts at PC maker Compaq Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> hurt the stock this morning, as the company's shares lost $15/16 to $40 7/8 on news it discounted prices on computers sold directly to consumers by 2.3% to 7.4% in its latest effort to out-Dell rival Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>. Compaq lowered the price of its Prosignia 330 (Pentium II, 350 megahertz, 64 megabytes of memory) to $1,629 from $1,749.
Long-distance phone company Qwest Communications International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QWST)") else Response.Write("(Nasdaq: QWST)") end if %> slipped $1/2 to $43 after Deutsche Bank initiated coverage of the company with a "hold" rating. The stock gained ground earlier this week after Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> reported a $200 million investment in the company.
Jabil Circuit <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JBL)") else Response.Write("(NYSE: JBL)") end if %>, a contract manufacturer of circuit board assemblies, stumbled today, losing $1 1/16 to $68 7/16, despite reporting fiscal Q1 EPS of $0.50, exceeding analysts' expectations of $0.43 and coming in a penny ahead of last year. CE Unterberg Towbin downgraded the stock to "buy" from "strong buy" this morning in the face of several upward revisions elsewhere.
Quickie photo maker Polaroid Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PRD)") else Response.Write("(NYSE: PRD)") end if %> fell $7/8 to $18 after it announceed that it would take reserves in Q4 of about $90 million to cover costs for additional restructuring and losses from asset sales. The company also said it renegotiated a $350 million credit pact with its 14 bank lenders.
Specialty cellulose products maker Buckeye Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKI)") else Response.Write("(NYSE: BKI)") end if %> burned away $1 7/8 to $13 following last night's announcement that it expects fiscal Q2 EPS to come in below analysts' $0.37 estimate when it reports results in late January. The company blamed increased costs from the startup of manufacturing and packaging improvements at its Foley, Fla., plant and a general slowdown in demand for the shortfall.
Enterprise software reseller Beyond.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BYND)") else Response.Write("(Nasdaq: BYND)") end if %> dropped $5/8 to $21 1/4 after Merrill Lynch downgraded the company's near-term rating to "neutral" from "accumulate," maintaining its long-term "buy" rating.
Transportation logistics management company Ryder System <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: R)") else Response.Write("(NYSE: R)") end if %> trailed off $1 3/4 to $23 5/16 after Stephens Inc. cut its rating on the stock to "neutral" from "market outperform."
Earth movers and heavy construction equipment manufacturer Caterpillar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAT)") else Response.Write("(NYSE: CAT)") end if %> dropped $1 5/8 to $42 13/16 this morning after losing $1 13/16 yesterday on the news that Q4 earnings are seen coming in "moderately less" then the $0.92 per share posted in Q3 and the First Call mean estimate of $1.06 per share.
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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), another Fool David Marino-Nachison (TMF Braden), a new Fool
Editing |